Tyson Foods CEO concedes “tough quarter” as high inflation and low meat demand eats company’s margins
09 May 2023 --- Tyson Foods is experiencing the double challenge of highly competitive meat prices and soaring inflation in feed and operational costs. While the company’s sales kept increasing in the last quarter (0.1%), its operating income declined 80% from US$2.61 billion to US$418 million in the last six months and turned negative for the quarter.
Donnie King, president and CEO of Tyson Foods, comments: “I can’t remember a time when our business faced the highly unusual situation that we’re currently seeing, where all three of our core protein categories – beef, pork and chicken – are experiencing market challenges at the same time.”
The company’s stock plunged 16.41% yesterday and is down 45.36% from a year ago.
Meat takes a hit
The UN Food and Agriculture Organization (FAO) revealed on Friday that meat prices ticked up in April (1.3%) but remained 6.1% lower than one year ago. Meat commodity prices are the least affected by inflation of all food categories analyzed by FAO.
Nonetheless, some early signs of price recovery might offer producers some relief, as poultry meat prices went up in April after nine months of continuous decline and increasing import demand from Asia and the Middle East.
However, Tyson Foods doesn’t expect margins to recover much in its fiscal 2023, where its operating margins for beef, pork and chicken could all go into negative numbers: the company expects -1% to 1% for beef, -2% to 0% for pork and -1% to 1% for chicken.
High feed prices are a headwind for the meat sector.“Beef is cycling out of historically strong margins that were seen throughout most of fiscal 2021 and 2022,” says King.
The company reduced its beef (-5.4%) and pork (-10.3%) prices in the second quarter. Even with the lowered prices the company sold 2.9% less beef, while pork sales ticked up 1.1%.
Chicken remains a popular food staple, with sales volume (6.4%) and prices (2%) up for the US company. The National Chicken Council reveals that chicken consumption has increased in the country every year since 2012.
However, the margins for chicken remain tight as key export markets remain closed due to the ongoing avian influenza outbreak.
Bad news expected
In October FoodIngredientsFirst spoke with Erin Borror, VP of economic analysis at the US Meat Export Federation, who explained that challenges for meat producers would start to mount up this year after a record 2023.
“As consumers worldwide see their disposable income reduced, there is some expectation that it will start to impact their meat demand,” she said.
Furthermore, decreasing meat prices in Brazil and plummeting prices for pork in China, after authorities intervened to flood the market with iemergency reserves, further pushed down prices.
The outlook remains gloomy for the meat sector, with Tyson Foods lowering its full-year forecasts from US$55-57 billion to US$53-54 billion.
“The first [financial year] half was challenging and many of the headwinds experienced are likely to persist for the remainder of the fiscal year,” notes John Tyson, chairman of Tyson Foods.
Streamlining operations
Tyson Foods announced the closing of two of its US chicken plants in March and the layoff of 1,700 workers. Furthermore, the business revealed it will eliminate 10% of its corporate job and 15% of its senior leadership roles last month.
The company has about 6,000 US corporate employees.
US per capita consumption of chicken has increased every year since 2012.
“Late last month, we announced important initiatives to simplify our structure and right size our team. These are a logical next step in our ongoing efforts to drive operational and functional excellence as we strive to be best-in-class in our industry,” notes King.
Branded foods boost
Meanwhile, King spotlighted the company’s branded foods business as a “key growth pillar for the future,” with its core business lines – Tyson, Jimmy Dean, Hillshire Farm and Ball Park – seeing sales growth of 13% and volume growth of 7%.
“We saw strong performance in our branded foods business and continue to be laser-focused on meeting customer needs and planning the future with them,” he highlights.
King explains that while the current protein market is challenging, Tyson Foods has a “strong growth strategy” in place and remains bullish on its long-term outlook.
“Through our growth strategy, focus on margin improvement, and proven leadership team, I am confident in our ability to capture the opportunities in front of us and create long-term value for customers, team members, and shareholders.”
By Marc Cervera
